Dear HDB: If the Resale Procedure Isn’t Broken, Don’t “Fix” It!

If you’ve ever watched the Highlander series on television, you’re probably familiar with the iconic tagline, “There can be only one.” It seems that the Housing Development Board (HDB), in its infinite wisdom, decided to apply that principle to HDB resale buyers and sellers by making a small, but critical change to the HDB resale procedure. Now, there can only be one “winner” in the resale process.

HDB’s resale procedure change could wash away hopes of buyers and sellers to get a fair deal.

Instead of buyers and sellers negotiating a price that benefits both parties, HDB has changed the resale process into a game of chance. Now, either the seller benefits from a low HDB valuation/high sale price, or the buyer benefits from a high HDB valuation/low sale price. There is no middle ground.

How Does the New Procedure Compare to the Old One?

- Advertisement -

Perhaps HDB thinks that negotiating the sale of a resale flat is as easy as bargaining over the price of fish and vegetables at the wet market. Sure, you can negotiate a reasonable price for a $5 fish without knowing its true price. But applying the same principle to an $800K resale flat makes absolutely no sense!

Most of you are probably still either in the dark about the latest HDB change to the resale procedure, or a little fuzzy on the details. Don’t worry, we’ll walk you through the change first, and then tell you why we believe it’s a terrible move.

The 3 Biggest Problems with HDB’s Change to the HDB Resale Procedure

Needless to say, we’re NOT happy with HDB’s latest revision to the resale procedure. While some may say that this change has been put in place to improve the housing market, we disagree.

Here are 3 of the biggest issues caused by the changes to the HDB resale procedure:

1. Someone Has to Lose In this Confusing Price Guessing Game

The reality of HDB’s price guessing game is that you’ll end up with a valuation that either leaves the buyer or the seller happy. Rarely are you going to have a situation that everyone leaves happy.

Now, buyers have no idea what the Cost-Over-Valuation (COV) will be until after a price has been negotiated and HDB reveals its valuation. This makes financial planning extremely difficult, because you won’t know how much cash you’ll need to fork out until you get the valuation.

You can thank HDB for that.

This lack of an official valuation leaves everybody in the dark including property agents, who buyers and sellers rely on to get a fair price.

2. No Benchmark for Uncommon Property Types or New Flats to Market

Remember that HDB mansionette that sold for $1 million dollars in Bishan? Property types that are “rare” on the resale market probably won’t have very much transaction data for home buyers and sellers to review. Without an official HDB valuation, sellers might be tempted to use such ridiculous prices as a benchmark to demand higher prices.

As for new HDB flats that have just hit the resale market after the Minimum Occupation Period (MOP), there won’t be any reliable benchmark to compare resale prices with either. The only way to get a reasonable price in this case would be to get an HDB valuation.

If there’s little or no data on uncommon property types in a particular area, how can buyers and sellers negotiate without receiving a valuation from HDB? It’s nearly impossible!

3. Buyers at Higher Risk of forfeiting their $1K Option Fee

Now that buyers and sellers need to negotiate a price first before HDB will grant a valuation, there’s an even greater risk to the buyer. Why? Because once both parties agree to a price, the buyer must pay the option fee, which is usually $1K, before the seller will grant Option to Purchase (OTP).

Here’s an example of how making a mistake with the price could cost you the $1k fee:

Scenario A: The flat’s HDB valuation is the same as the negotiated priceScenario B: The flat’s HDB valuation is $70k below the negotiated price

Scenario A

Scenario B

Asking Price

$800K

$800K

Valuation

$800K

$730K

Loan (80%)

$640K

$584K

CPF (15%)

$120K

$109.5K

Cash (5%)

$40K

$36.5K

COV

$0

$70K

Total Cash Required

$40K

$106.5K

From the example above, it’s easy to see the significant impact the HDB valuation has on how much cash you ultimately need to purchase an $800K flat. Unfortunately, we have a feeling that such examples will soon become reality, due to HDB’s misguided changes to the resale procedure.

If you’re in this situation in the future, you’ll experience firsthand how knowing the valuation of a flat prior to negotiation could have helped you make the right decision, saving you $1k and plenty of heartbreak.

Seriously HDB, if the resale procedure isn’t broken, don’t fix it.

Do you think HDB’s latest move will help or hurt Singapore home buyers and sellers? Share your views with us on Facebook! And to find even more useful information on everything personal finance, visit MoneySmart today!